Crucial Words in SEC's Proposed 'Circuit Breaker' Rules

The SEC has released details of new rules on single stock circuit breakers. As expected, "trading in a stock would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10 percent change in price over the preceding five minutes."

The important phrase here is "change in price," implying that circuit breakers would be applied if stocks moved UP OR DOWN 10 percent in a five minute period.

The new rules would be in effect on a pilot basis through Dec. 10, 2010.

This halt is applicable only between 9:45am and 3:35pm. Apparently, the exchanges did not want a trading pause to bump up against the close.

After the rules are published, there will follow a 10-day public comment period, and the SEC will determine whether to approve them shortly thereafter.

Importantly, for the moment this only applies to stocks in the S&P 500; the SEC says it is planning "to expand the scope to securities beyond the S&P 500 (including ETFs) as soon as practicable." (See more on ETF portfolios.)

What's missing:

1) no change in macro circuit breakers. "The SEC staff is working with the markets to consider recalibrating market-wide circuit breakers currently on the books — none of which were triggered on May 6. "

2) nothing on clearer rules on busting erroneous trades: "The SEC staff also will continue to work with the exchanges and FINRA to improve the process for breaking erroneous trades, by assuring speed and consistency across markets."